When "Lindy" was trying to figure out the implications of the latest divorce settlement offer that she received from her soon-to-be ex-husband "Ted," she panicked. She would have asked her lawyer for guidance, as 79% of divorcing individuals end up doing, but she was not sure that her lawyer could give her the guidance she needed.
The previous offer had come two days before their last court appearance. There was just not enough time to understand the implications of the various components of the offer and assess whether it was an equitable division of marital assets. Lindy was just too nervous to make the decision "on the steps of the courthouse," so she said no.
Clearly, there is something wrong with a process in which the financial outcome is so critical to both parties but people like Lindy and Ted get no professional financial support despite spending substantial sums of money litigating a divorce. Yet it is not surprising. The financial issues of divorce, including shorter-term tax issues and longer-term financial planning issues, have become terribly complex. Divorce lawyers have enough on their hands with the legal issues of divorce. Increasingly, they are unable to counsel their clients in depth on the financial implications of divorce, which inevitably have a lasting impact on their quality of life and stability long after the divorce itself is finalized.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
According to a recent survey conducted by the Institute of Divorce Financial Analysts, 75% of respondents believe that a divorce financial specialist would have been helpful in the preparation, negotiation or recovery phases of their divorces. According to this same survey, 45% of people litigating their divorces felt unprepared to enter financial negotiations, and 40% of those mediating their divorces feel the same way.
No wonder divorce financial planning has risen as a specialty. Professionals dedicated to meeting the needs of divorcing individuals can help people such as Lindy and Ted understand the financial issues of divorce, negotiate settlements and recover into a financially stable post-divorce life.
In Lindy's case, she was fortunate to be referred to a divorce financial planner by a divorce coach. Divorce financial planners build on financial expertise often acquired by certified financial planners (CFP) or certified public accountants (CPAs). They also often hold the certified divorce financial analyst (CDFA) designation. They excel in their ability to simplify the complex financial issues of divorce so that people like Lindy and Ted can understand the consequences of their decisions and plan accordingly for their separate futures. In addition, divorce financial planners bring to the table an understanding of tax issues in divorce, employee stock options, retirement plans, pension plans, Social Security, real estate and long-term financial planning. They help assess potential outcomes of strategies such as trading home equity for ownership of retirement accounts—is that a good idea for you for the long term?
As with other financial specialists, divorcing couples and individuals are usually better off picking a fee-only divorce financial planner who will have his or her clients' best interests at heart. A great resource to find one is Association of Divorce Financial Planners (ADFP).
In Lindy's case, the new offer seemed to address her needs better. Ted offered to give Lindy more of the 401(k) in exchange for keeping his pension. In addition, Ted offered more alimony. However, Ted's offer was still not clear about his employee stock options, as he did not know how to value them. Plus, the offer did not address the issue of college funding for their 13-year-old daughter.
Lindy's divorce financial planner carefully reviewed the settlement offer in light of her individual circumstances, explained the various issues and made recommendations for her lawyer.
After some more negotiations, Lindy and Ted were able to come to an agreement and avoid a costly trial. Even Lindy's lawyer was happy with the process, as it helped him to focus on his area of expertise: writing the agreement and managing the legal process.
Chris Chen, CFP®, CDFA, is the founder of Insight Financial Strategists, LLC, a fee only investment advisory firm in Waltham, Mass. He specializes in retirement planning and divorce financial planning for professionals and business owners. Chris is a member of the Financial Planning Association and the Massachusetts Council on Family Mediation. He is on the Board of Directors of the Association of Divorce Financial Planners.
-
Stock Market Today: Stocks Swing as Trump Scraps Canada Trade TalksDespite a mid-afternoon slip, the S&P 500 and Nasdaq ended the day at new record highs.
-
How to Choose a Mortgage Lender in Five StepsNot all lenders are created equal — here’s how to compare offers, rates and terms with confidence.
-
Why Smart Retirees Are Ditching Traditional Financial PlansFinancial plans based purely on growth, like the 60/40 portfolio, are built for a different era. Today’s retirees need plans based on real-life risks and goals and that feature these four elements.
-
These Are the Key Tariff Issues to Watch in Coming MonthsWhile they're not dominating headlines right now, tariffs are not over. Some key dates are coming up fast that could upend markets all over again.
-
Technology Unleashes the Power of Year-Round Tax-Loss HarvestingTech advancements have made it possible to continuously monitor and rebalance portfolios, allowing for harvesting losses throughout the year rather than just once a year.
-
The Fiduciary Firewall: An Expert's Five-Step Guide to Honest Financial PlanningArmed with education and awareness, you can avoid unethical people in the financial industry by seeking fee-only fiduciaries and sharing your knowledge with others.
-
Bill Bought a Fridge, and Then His Nightmare BeganA Lowe's customer reached out to me after he encountered the retailer's 48-hour return window for major appliances when his brand-new fridge turned out to be defective.
-
Savvy Marketing Tips for Financial Pros From a Financial ProThese strategies for marketing, client acquisition and retention can help financial professionals elevate their business and production.
-
What to Do After Losing Your Spouse: An Expert GuideSome financial decisions need to be made sooner rather than later. In honor of International Widows' Day, here's what you need to know about gathering documents and contacting government agencies and financial institutions.
-
I'm a Financial Planner: This Is the Key to Successful Retirement PlanningYou have to focus on what you can control — the inputs — and not obsess over what you can't control — the output. Here's how to do that.
